America's worst drought in fifty years hit expansion in the world's largest
economy more than feared last quarter.

The US economy expanded at a 1.3pc annual rate in the second quarter, the Commerce Department said in its final estimate. That is down from an earlier estimate of 1.7pc.

A sharp drop in activity in America's agricultural heartland, together with weaker consumer and business spending, prompted the downward revision, the report said.

The hot weather that scorched states such as Indiana, Iowa and Nebraska over the summer saw the volume of grain, soya and wheat harvested and sold collapse. Farm inventories fell $5.3bn in the second quarter after sliding $1bn in the first three months of the year. Economists cautioned that the drought was exceptional but the overall revision left the economy in a weaker position at the start of the current quarter.

The battle for credibility over how to ignite America's recovery is at the heart of the increasingly heated election campaign between President Barack Obama and Mitt Romney. Mr Obama argues that the economy is recovering, while Mr Romney is pledging a mix of tax cuts and deregulation that he says will accelerate growth. With the election just over a month away, Wall Street and voters are focused on the outlook for the economy for the rest of the year.

Thursday's data offered some encouragement. Although orders for durable goods plunged 13pc in August, once orders for airlines and defence equipment were stripped out, they climbed 1.1pc. That reverses the decline of the two previous months. A separate report showed that the number of new claims for weekly unemployment benefits dropped last week.